PSH-Annual-Report

Annual Report December 31, 2014Notes to Financial Statements (continued)8. DERIVATIVE CONTRACTS (continued)The Company purchases and sells put and calloptions through regulated exchanges and OTCmarkets. Options purchased by the Companyprovide the Company with the opportunity topurchase (call options) or sell (put options) theunderlying asset at an agreed-upon value either onor before the expiration of the option. TheCompany is exposed to credit risk on purchasedoptions only to the extent of their carrying amount,which is their fair value.Options written by the Company provide thepurchaser the opportunity to purchase from or sellto the Company the underlying asset at an agreeduponvalue either on or before the expiration of theoption. In writing an option, the Company bears themarket risk of an unfavorable change in thefinancial instrument underlying the written option.The exercise of an option written by the Companycould result in the Company buying or selling afinancial instrument at a price higher or lower thanthe current market value, respectively. Themaximum payout for written put options is limitedto the number of contracts written and the relatedstrike prices, and the maximum payout for writtencall options (which could be unlimited) iscontingent upon the market price of the underlyingsecurity at the date of a payout event.Equity ForwardsAn equity forward involves a commitment by theCompany to purchase or sell equity securities for apredetermined price, with payment and delivery ofthe equity securities at a predetermined futuredate.Currency ForwardsForeign currency forward contracts are used fortrading purposes and may hedge the Company’sexposure to changes in foreign currency exchangerates on its foreign portfolio holdings. A foreigncurrency forward contract is a commitment topurchase or sell a foreign currency on a future dateat a negotiated forward exchange rate.The following table shows the fair values ofderivative financial instruments recorded as assetsor liabilities as of December 31, 2014 andDecember 31, 2013, together with their notionalamounts (or shares, when applicable). Thenotional amount, which is recorded on a grossbasis, is the amount of a derivative’s underlyingasset, reference rate or index, and is the basisupon which changes in the value of derivatives aremeasured. The notional amounts indicate thedollar volume of contracts outstanding at thereporting dates and are indicative of neither themarket risk nor the credit risk.2014 2013Fair Value Notional/Shares Fair Value Notional/SharesDerivatives primarily held for tradingpurposesAssetsCurrency options $ 5,943,842 $ 3,888,846,000 ± $ 2,215,090 $ 1,693,979,000±Equity options 140,574,953 9,426,490 # 260,096,518 20,834,341#Interest rate options - 41,677 $ 164,731,124±Warrants 110,950,124 8,258,884 # 74,243,039 7,597,222#Total return swaps 7,823,530 31,337,608 # 8,248,539 690,379#Total Assets $ 265,292,449 $344,844,863LiabilitiesEquity options $ 16,071,113 7,733,534 # $ 90,079,064 6,484,279#Total return swaps 10,246,990 7,227,546 # -Credit default swaps 605,608 $ 40,043,000 ± 964,104 $ 40,043,000±Total Liabilities $ 26,923,711 $ 91,043,168Derivatives primarily held for riskmanagement purposesAssetsForeign currency forward contracts $ 23,822,484 $ 646,652,900 ± $ 514,897 $ 335,933,349±LiabilitiesCredit default swaps $ 215,913 $ 34,638,000 ± $ 701,264 $ 45,238,000±± - represents notional value (in USD)# - represents number of underlying equity shares56 PERSHING SQUARE HOLDINGS, LTD.